Wine company investors are often called "angels." They provide the equity engine for the wine business. They can come from many backgrounds and have many different interests. Often, they are friends and family. They may be organized financial institutions, such as local or regional banks. Or they may be lovers of a particular wine maker.
Friends and family ordinarily invest based on their confidence and connection with the winemaker. They are less likely to scrutinize the business model that the winemaker has developed. But there are personal and emotional issues that can make this an unwise investment.
Friends and family investors must be placed on the same footing as institutional investors. This means that the winemaker must create and follow legal documents. And the winemaker must be sure that these investors understand the risks associated with the investment.
Issues can be very personal - especially with family members. Suppose that after a year or two, Uncle Fred wants his money back - your other investors may not permit you to refund him (even if you can and want to). Even family members have to consider the risks in investing.
Institutional "angels" prefer to invest in a business, not merely an idea. Their criteria vary, but usually they look for:
- A wine brand that is launched, product is bottled or at least an initial release is planned
- A brand that has a unique trademark
- A track record of at least a year in the business of wine
- A management team with wine making and marketing experience and past success
- A scalable product and business model - one that they can review and decide makes sense.
Angel investors also have strong preferences about investment terms. Most angels want to own equity or at least a promissory note that gives them the opportunity to convert into equity. They will focus on issues such as:
- What is the implied valuation of the business?
- If they own a minority stake, what control do they have over major decisions?
- How will they get their money out plus a reasonable return that compensates them for the risk, if they wish to leave the investment?
The extent to which an investor considers these issues depends on how much money is invested and whether the investor is driven by the need to make a profit, or just likes the idea of owning part of a winery.